Tuesday, March 17, 2009

The spillover from D-3's empty wallets is beginning to really hurt domestic auto suppliers. First, Ford spinoff Visteon, which last week barely made a $16 million bond interest payment, last night joined Lear (which Carl Icahn tried to acquire unsuccesfully in early 2007) in announcing it would likely receive going concern language from its auditors.

"The inclusion of such a paragraph in such report would result in defaults under certain indebtedness of the Company, which defaults, if not cured or waived prior to the expiration of the applicable grace period, would result in an event of default under the Company’s principal U.S. senior secured credit facilities. Such events of default, if they occur, provide the lenders the right to demand all amounts due under the respective agreements immediately due and payable, which may result in a cross-default under other indebtedness of the Company. The Company has commenced discussions with the Administrative Agents of its senior secured credit facilities, as well as with an ad hoc committee of lenders under its senior secured term loan (the “Ad Hoc Committee”), in order to obtain a waiver and/or amendment relating to such potential noncompliance; however, the Company can provide no assurances that such waiver and/or amendment can be obtained."

And in more bad news, earlier this morning Arvin Meritor had its senior unsecured rating downgraded from B3 to Caa2 (with outlook negative) by Moody's. As part of its evaluation, Moody's stated the following provision as to the adverse outlook facing not only ARM but the entire auto suppliers space:

The negative outlook considers the challenges ArvinMeritor will face in implementing restructuring actions rapidly enough to address the deterioration in its businesses and the potential risks of its liquidity profile if the rate of cash consumption in the business cannot be stemmed. The negative outlook also considers the risk of financial covenant violations under the company's senior secured revolving credit facility over the near-term.